Certified Government Financial Manager (CGFM) Practice Exam 2025 - Free CGFM Practice Questions and Study Guide

Recording claims and judgments in governmental funds in the period in which they are incurred aligns with the principles of modified accrual accounting, which is typically used by government entities. Under this method, revenues are recognized when they are measurable and available, while expenditures are recognized when the related liability is incurred.

Therefore, the appropriate time to record claims and judgments is when they are incurred, which acknowledges the obligation that the government has to pay for those claims or judgments. This method reflects the financial position of the government more accurately in that period, allowing for better transparency and accountability in financial reporting.

Recording claims and judgments at the time they are made, when payment will be made, or when the liability is settled does not provide an accurate picture of the government’s financial obligations and could mislead stakeholders about the entity's financial health at any given time. It’s crucial for government financial management to recognize liabilities promptly to ensure stakeholders are informed and to facilitate sound fiscal decision-making.